RAM reaffirms BBB and P3 ratings of LB Finance

RAM Ratings has reaffirmed LB Finance PLC's long- and short-term financial institution ratings at BBB- and P3, respectively. The long-term rating has a stable outlook.

The ratings are based on the company's adequate asset quality and healthy - albeit easing - financial performance, weak funding structure, and marginal - although improving - capital adequacy.

Concurrently, RAM Ratings has assigned respective long - and short-term ratings of BB+ and NP to LBF's proposed Rs. 450 million unsecured subordinated redeemable debentures.

LBF is the third-largest registered finance company ("RFC") in Sri Lanka, accounting for about 8% of the industry's assets as at the end of FYE March 31, 2008.

With a network of 15 branches and 40 pawnbroking centres (inclusive of branches) the company has continued the aggressive expansion of its loan portfolio, which augmented 57.83% year-on-year ("y-o-y") in FY Mar 2008.

Meanwhile, the company has also focused on improving its asset quality.

LBF wrote off Rs. 326.67 million of non-performing loans ("NPLs") in FY Mar 2007, which had been fully provided for, and maintained a tight grip on new facilities.

These measures, along with its expanding loan base, improved the company's gross NPL ratio from 6.23% (industry:4.46%) as at-end-FY Mar 2007 to 4.10% as at end-FY Mar 2008 (industry:6.54%).

Moreover, the Company had also adopted a more stringent provisioning directive which, though resulting in higher provisioning, had improved its NPL coverage. Notwithstanding these improvements, given the weakening economic outlook, RAM Ratings opines that LBF's asset quality may soften somewhat, albeit still adequate.